Good morning Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Happy Pro Medicus day!
This morning, Pro Medicus (ASX: PME) went BANG with two multi-million dollar deals this morning:
A 7-year, A$16M contract with TidalHealth
A 5-year, A$28M contract renewal with Allegheny Health Network
This follows the 7-year A$90M contract with Beth Israel Lahey Health two weeks ago.
(also, AustralianSuper just went substantial on Friday night)
Pro Medicus is one of the darlings of the healthcare industry.
$13.2 billion market cap.
Largest med-tech stocks on the ASX.
It sells cloud-based medical imaging software, Visage 7, which is a high‑speed viewer that lets radiologists quickly access, view, and interpret large medical images over the internet.
It’s been a rough 12 months for the stock.
Dropping from a high of $336 in June last year to a low of $107.
(up as high as $148 today)
In a text-based interview, the CEO looked to answer some questions about why the stock is down…
The answer…
The SaaSpocalypse and the broader tech sentiment:
(Source, PME Announcement)
Now, I’ve covered the SaaSpocalypse before in this newsletter.
But here is a quick reminder.
In February this year, there was a broad selloff in the tech sector.
Anthropic launched a new suite of AI automation tools, Claude Cowork, designed to automate tasks across legal, sales, marketing and data analysis.
In a very short period, sentiment shifted from…
AI will be useful > AI will replace us.
Particularly in software with a SaaS model.
At the time, I argued that medical technology stocks would largely be insulated, as the regulatory environment around sales to healthcare institutions creates a moat that AI will find difficult to penetrate.
Read my full take: How medtech survives the SaaSpocalypse.
Pro Medicus fell, but it wasn’t until the earnings report a week later that Pro Medicus’ shares dropped off a cliff.
I wrote about this at the time as well.
Read my full take: Why do stocks fall on good news?
While the print was good, it was not great, and the massive amount of growth priced into the stock was now balanced against the risk that things would take longer.
Looking at the Price-to-Earnings ratio chart, Pro Medicus has always been priced strongly for growth.
The PE ratio is the price you pay per dollar of a company's earnings.
So, at PE of 300 means the market is paying $300 today for $1 of profit - a bet that those earnings are going to grow like crazy to justify the price.
But over the last six months, the PE ratio has come down significantly, to a more manageable 60.
Still in line with growth stocks, but not crazy at 300.
So, was it the SaaSpocalypse that caused the big selloff for Pro Medicus?
The reality is that Pro Medicus shares had fallen BEFORE the SaaSpocalypse in February.
I think that at a PE ratio of ~300, it was clear that Pro Medicus was overbought, and the market rebalanced its risk against the company's growth potential.
We’ve seen a lot of the larger-cap stocks.
CSL, Cochlear, Pro Medicus.
Even the Commonwealth Bank got to a PE ratio in the low 30s.
… and that’s for a bank.
What happens is that passive investment funds and institutions will buy up these stocks because they are big.
Regardless of their value.
So when the rubber hits the road, and earnings reveal a huge disconnect between value and growth…
We see big pullbacks in stocks.
Again, like we’ve seen with CSL, Cochlear, and Pro Medicus.
Right now, it appears that the PE ratio for Pro Medicus has settled around that ~60 mark.
Which I think is a healthy point.
It means that the market is more hesitant to pay for the story.
It is paying for the results.
And on a morning where it just banged out two more contracts, that's exactly the kind of growth it's now being asked to deliver.
Let’s dive in…
The Pulse Check
Chimeric Therapeutics (ASX: CHM) presents new Phase 1 data at ASCO: 82% disease control among 11 evaluable patients with its CAR-T cell therapy for colorectal cancer. (CHM)
🪑 Before CHM, stable disease was observed in 6/8 patients (75%).
Now CHM is at 9/11 (82%).
Essentially, 3 of the next 3 patients had “stable disease”.
With one of those three having Dose-Limiting Toxicity (grade 3).
I spoke to the CEO this morning, and she said she was “blown away with the results,” and that the feedback from the broader oncology community at ASCO has been very positive.
(Honestly, she was buzzing)
I hold some CHM shares and have been looking forward to these results.
Nice work team.
Memphasys (ASX: MEM) secures a two-year commercialisation agreement in Vietnam for its Felix™ sperm separation system. Two-year contract valued at $530K. (MEM)
Little Green Pharma (ASX: LGP) completes merger with Cannatrek. (LGP)
🪑 Let’s see how it trades when the shares get issued post-merger.
Will they smash out their stock, and can we buy the “combined entity” for less than the sum of the two?
I’m watching closely.
My full take: The Cannabis Merger Trade: Liquidity First, Value Later
4DMedical (ASX: 4DX) acquires European lung cancer imaging firm contextflow for AU$18.56M upfront and ~$4M in 4DX stock. Plus some milestones on the backend. (4DX)
🪑 Looks like a “buy the footprint” move for 4DX. Immediately acquiring a sales team and “ins” with a number of hospitals to accelerate growth in Europe.
I like this deal.
ReNerve (ASX: RNV) has secured an exclusive 3-year distribution agreement with Swedish Trading Company to commercialise its nerve repair products in Hong Kong, Macau, and China. (RNV)
🪑Distribution agreements are a low-cost way to enter new markets.
But I’m always hesitant about the quality of the distribution agreement; it all comes down to the synergies between the distributor AND the product.
A “wait and see” from me.
Epiminder (ASX: EPI) announces milestone of 25th patient enrolment in its DETECT study for its epilepsy care medical device. (EPI)
🪑 Milestone ticked.
Importantly, the company stated that it was on track for final recruitment of all 210 patients by H1 CY2027.
Mayne Pharma (ASX: MYX) announces that its subsidiary, DistributeRx, has entered into a partnership with Resilia Pharmaceuticals to exclusively distribute RECEDO topical gel for skin scarring in the US. (MYX)
🪑 Exclusivity is always good for the product catalogue.
Austco Healthcare (ASX: AHC) forecasts FY26 revenue of $90-$95M (up 11%-17%) and NPAT of $9-$9.4M (up 52%-58%). (AHC)
🪑 All numbers up for Austco. Nice work.
Health tracking ring company Oura files for a US IPO. (Medcity News)
See you all tomorrow,
The Armchair Analyst.
